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Business and Corporate Bankruptcy in Massachusetts
Last Edited: 1/3/2012
Businesses can file bankruptcy under either Chapter 11 or Chapter 7.
Chapter 11 bankruptcy is the reorganization chapter, and Chapter 7 is the
liquidation chapter.
The Big Picture:
Businesses sometimes fail, and sometimes they are just failing. This is a
key distinction. So, here's a very important question: If a business is failing because it can't pay its debts
and expenses, is the business worth saving?
It's a tough question, and it takes a lot of courage to answer it honestly.
Sometimes the answer is yes. Sometimes no. We'll call the "yes"
reorganization, and the "no" liquidation. Both are addressed here.
Reorganization in Chapter 11:
When should a corporation, limited liability company (LLC), or other business try to reorganize in
Chapter 11? First, the
business must have problems with debts, not just expenses. Ask yourself
this: if my debts went away, would I be able to market and sell my product or
service, pay my employees, overhead, and other expenses and make a profit (or at
least a fair salary for myself)? This is the first step in determining if
your business has real value as a going concern. You're debts are probably not
going away completely, but it is an important initial question. In a
Chapter 11 reorganization, debts may be reduced or
restructured in such a way that makes a business viable again.
Fundamentally, the bankruptcy system asks a very basic question: Is the business
worth more dead than alive, or more alive than dead? Think about this for a
second.
If a business is worth more alive than dead, a reorganization may make sense.
However, a business must have real value worth saving because Chapter 11
bankruptcy is expensive. Initial attorney retainers for Chapter 11 cases
are substantially higher than in consumer cases or business liquidation
cases. So, these cases aren't right for every business, but a
Chapter 11 can work wonders in the right circumstances. Here's what one
business owner recently wrote me after his business was successfully reorganized
in Chapter 11 bankruptcy.
"Thanks to you that yesterday even happened.
I appreciate everything you have done to help save our business." -- President, Homeland Office Products and Equipment, Inc., Plymouth, Massachusetts,
December 2011.
We tend to be more affordable than larger law firms that do business
reorganizations, so consider contacting us if you have this sort of case in
mind. It's challenging work and one of the favorite things that we do.
It is a great feeling helping a business succeed again.You can get more
Chapter 11 bankruptcy
details here.
Business Liquidation in Chapter 7:
Sometimes the hard truth is that a business is not worth saving. If there's a silver lining
in this situation like this, it's that the business bankruptcy system generally allows entrepreneurs
to move on from failing businesses and start new ones in the future.
This has always been essential to our
capitalist system. If the consequences of business failure were too harsh, few would
even try. However, when a business and/or business owner has unpaid debts,
there are real consequences, and bankruptcy is sometimes the only way to preserve
assets and income.
Business bankruptcies in Massachusetts under Chapter 7 come in many shapes and sizes, so a personalized assessment is
necessary, but I'll make a couple
of points here.
Bankruptcy for the Business Owner, the Business, or
Both?
A "business" bankruptcy can be a personal bankruptcy for a business owner (caused by the business debts)
or it can be a bankruptcy for the LLC or corporation itself. These are very different types of bankruptcies.
Sometimes both are necessary.
Personal bankruptcies for business owners are very common. They are usually caused
by the owner's personal guarantee of business debt. When a business fails, lenders seek to enforce these
guarantees in court
and business owners often have no choice but to file bankruptcy when faced
with large personal judgments.
One bit of good news is that rules for these "business-personal" bankruptcies are more lenient than for straight consumer bankruptcies,
at least when it comes to income issues: The means test does not apply in
Chapter 7 cases with primarily business debt. So, if you
make a lot of money (perhaps after returning to work in your field),
this will not stop you from filing Chapter 7 bankruptcy.
However, chapter 7 "business-personal" bankruptcies are not treated any different when it
comes to assets, however--and in many of these cases there are significant
non-exempt assets. If a business owner wants to keep these assets, a Chapter
13 will often be necessary.
We have a great deal of experience dealing with these "business-personal"
bankruptcies and can help you make smart strategic decisions. We have experience and know-how when it comes to asset
protection and pre-bankruptcy planning. You can call us for free, just
like anyone else. However, if you have a complex situation, we will
usually suggest that you come in for a longer, paid consultation. We charge
a reduced hourly rate for business consultations of $200/hr.
A Chapter 7 bankruptcy can also be filed for the corporation or LLC itself.
These business liquidations often make sense if the business has little value, but the decision involves the
amount of business assets and the aggressiveness of the business creditors.
If a business has significant value, it usually better to reorganize in Chapter
11 or, failing that, to do a liquidating Chapter 11.
Good and early planning is essential in closing down a failing business. Please do not do anything drastic (like transfer
assets outside the normal course of business) before speaking to a bankruptcy
lawyer. There can be serious consequences if such transfers are conducted
in the wrong way.
 Read the Top 10 Questions about Bankruptcy in Massachusetts.
Bankruptcy Client Testimonials.
About Ortiz & O'Donnell.
Request Free Phone Consultation or call (617) 716-0282.
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